Anyone in the world can start a business. If you have enough money, all you have to do is to spend it, and you can create a business overnight. However, starting a business and running it are two different things. According to the statistics, more than 50% of small businesses fail in the very first year of startup. Moreover, more than 95% of these startups fail to go past the first five years. So, when you look at the facts, you might be more inclined to do your 9-5 job than to risk your future by investing in a business.
However, the reason that most of these businesses end up being in the pile of failures rather than soar up as an emblem of success is that they have not done the needed research. Before you dive deep into a certain industry, you have to figure out how the market works and work towards developing a product or a service that is unique. After you have come up with a perfect product to sell, you need to pay some attention to the legal side of your business. The high cost of legal services is one of the main reasons why small businesses evade hiring legal representation. Overlooking this one small detail ends up being the cause of their doom. So, in this article, I am going to highlight the most common legal issues that businesses face and how you can avoid these issues.
Undefined Business Structure
One of the most solid ways to ensure that your business turns out to be profitable is to define a solid structure before you start pouring in money. Your company’s business structure is the foundation on which your future relies. If the foundation is weak, your business is not going to pass the test of time. A business structure can be categorized into:
- Sole Proprietorship
In this type of business model, a single person is responsible for setting up the entire company without a legal entity. If you opt for this model, you will be in full control of all the profits you earn. But, on the other side, you will also be responsible for all the liabilities and taxes your business faces.
- Partnership
It is a type of business model in which a company is established by two or more people. You begin a partnership by signing a partnership agreement with the other people involved. By doing so, everyone involved in the agreement is equally responsible for the liabilities, taxes, capital, obligations, and restrictions related to the business.
- C Corporation
In a C Corporation, the business and the owners are considered to be two different entities. It means that both of them are taxed separately. The company has to pay corporate income tax, and the shareholders have to pay tax on their income.
- S Corporation
On the other hand, in an S corporation business structure in which you can avoid double taxation. It provides the owners with limited liability, which means that the owners’ personal assets are shielded from any claims from contracts or litigation.
- Limited Liability Company
Just like in the S Corporation, in this form of business structure, the company is not taxed separately. You can acquire an LLC agreement, which outlines the rights you have as a business.
The type of business structure you choose has a huge effect on your taxes and how much you will be held responsible as an individual in case a lawsuit is filed against a business you own.
Protection of Intellectual Policy
The intellectual policy of a company refers to its patents, trademarks, and copyrights that must be protected at all costs. If you copy the intellectual policy of another business, you may be at the risk of losing your business license. To make sure that you don’t have to go through any trouble when it comes to your business license, consider acquiring the services of a professionals like the San Diego License Defense Lawyer, experienced in navigating the process. If your business license is on the line, a license defense lawyer will help you get out of trouble.
When you are starting out, you need to conduct a detailed market analysis before filing for your intellectual property. If another business believes that you have copied its trademark or patent or created a business name or logo similar to theirs, they will take you to court and skim you off your hard-earned money.
Employee Related Issues
A business depends on its employee to function smoothly. However, if you don’t develop a clear set of rules, you might get yourself in quite a bit of trouble. When you hire an employee, you have to offer him a legally binding contract. If there is a single loophole in your contract, you can potentially lose a lot of money if your employee finds it out. The first thing that you have to do is to determine the status of the employee you are hiring. An employee can be classified into full-time, part-time, or as an independent contractor. The benefits that you are going to offer him depend on the aspects of employment.
- Independent Contractor
If you are hiring an independent contractor, it means that you are acquiring services from other businesses to do a certain task for your own company. Typically, when you hire an independent contractor, you don’t have to offer him many benefits as he doesn’t come under your direct employment and is only going to work for you for a period of time. You should negotiate what kind of work is he supposed to do, how much time should he spend doing the work, and how much you are going to pay him for the work he does.
- Full time and Part-Time Employee
The main difference between full time and part-time employees is the number of working hours and how they are paid. Full-time employees have to stick to company rules as defined in their employment contract and may have to complete at least eight working hours every day. They have a basic salary and enjoy all the perks a company offers. On the other hand, part-time employees work by the hour and are paid for the amount of time they work.
- Termination of Contract
One of the biggest problems employers have to face is when they are terminating an employee. It can raise a lot of legal issues if you don’t do it the right way or mishandle the issues. So, you need to be very careful when you are terminating the contract of an employee, as doing it for the wrong reasons might result in legal issues. Generally, you can fire an employee due to underperformance, misconduct, or retrenchment. All of these things should be mentioned in the contract.
- Discrimination
Another thing that you have to be careful about when running a business is to make sure that none of your employees are being discriminated against by any of your executives or by other employees. Your former or current employees can sue you on the grounds of discrimination, which not only leads to defamation, but you can also lose a lot of money. These allegations can be based on age, gender, ethnicity, religion, etc.
As an employer, it is your job to protect your employees and provide them with a safe working environment where they don’t feel attacked. You must treat all your employees equally, and there shouldn’t be any favoritism for a certain group of people.
- Health and Safety
Last but not least, you need to make sure that you provide all the safety equipment that your employees need to do their work safely. If any employee gets injured on duty, and the accident occurred due to your negligence, you may be sued for damages. So, you should draft a clear Health and Safety Policy where you mention all your responsibilities and the procedures that employees need to follow to prevent any injuries and illnesses.
Dissatisfied Customers
You might have seen it in movies and TV series that a certain group of people go out against a whole corporation by filing a class-action lawsuit against them. Trust me when I say that you don’t want to be on the receiving end of a class-action lawsuit as it is going to hit you where it hurts the most. Before you launch a product or a service, you need to rigorously test it to make sure that it isn’t faulty in any way. If the product isn’t as you claim it to be or if the product is the cause of any long or short term health complications for the user, a class action lawsuit is going to tarnish your brand image and cost you millions. In order to make sure that you are safe, you need to be proactive and pay attention to the queries of your customers. You need to provide swift customer support and deal with every client professional so that they are happy with your services.
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